All Forum Posts by: Andrew Beauchemin

@Daniel Rogers "Cash offer" doesn't necessarily mean they are paying in actual cash.  All this means is that the buyer is waiving their financing contingency.  From a seller's perspective, the benefit to a cash offer is the assurance that the deal will close without the risk of financing falling through.

I agree these seem reasonable. If you get this under contract ASAP, have all of your ducks in a row for the lenders (borrower PFS', property financials, etc.) and make a lender selection quickly, I don't see why you couldn't close by the hard date. As Sam mentioned, you can always buy time, whether that's via seller extensions with EMD, or lender expedition fees.

Regarding Title, make sure if you're paying for it, you're able to use your own title company, not one chosen by the seller.

@Sanjoy V. Great advice from everyone above - I wanted to add that if you know you want to explore a sale prior to the 10 year period, you may be able to negotiate a different term, like a 5 + 5 or 7 + 3.  You'll be subject to a floating rate in the latter term, but lenders will often restructure Prepayment Penalties to give you an out at the end of the initial term. 

i.e. a 5+5 PPP could look like this : 5, 4, 3, 2, 1 (0% for final 3 months of 5th yr), 5, 4, 3, 2, 1 (0 again for final 3 months of 10th yr) 

Explore your options and run your numbers, see what works best for you and your investors.

@Francis Mendo I use LexisNexis.  www.Nexis.com

@Anthony Petrarca The bank will want to look at both the liquidity, as well as reserves in escrow for the property.  This number is going to be different across every market, asset type, and lender, but it's something that each lender should provide in their initial preliminary quote, and in most cases is negotiable.

I'll usually ballpark reserves at ~$250/unit for stabilized multifamily.  More if there is capex planned or for some reason you're expecting higher than normal rollover / leasing costs.

@Dean Taylor You can read about these kind of loans on the HUD website : https://www.hud.loans/fha-221d4/

In my opinion, syndicating equity and getting a standard commercial loan would be a better option in most cases. With this FHA loan, you'll be giving up a lot of control to the lender, cutting your cash flow significantly, a ridiculous ~4.5% annual Mortgage Insurance payment, will be subject to annual audits and regulatory costs, and high up-front fees with long closing periods. Not to mention the headache of dealing with government paperwork and employees.

You may also have trouble getting an offer accepted vs. a comparable offer with a standard commercial loan. 

I am curious to hear from others who have used this loan, and if there are any advantages that I may be overlooking.

@Javier D. 

Non-Recourse is the term I think you're looking for.  That's great to have.

12% Sounds like hard money, not bridge.  I'm seeing bridge at WSJ Prime + 0.5-1% (5.5-6%)

Yes, 1% broker fee for this size deal sounds about right. Lender may also charge 0.5 - 1% on top of that.

@Javier D. Some great advice above, I'd like to add some thoughts regarding your financing.  I haven't fully underwritten this myself, so this is just at first glance.

I think you're a bit aggressive on your financing. Your numbers are certainly possible, but I would recommend you add some cushion in case things don't go the way you have them here.  If you have this already locked in, more power to you, and I want the phone number for this lender!

In no specific order, some initial thoughts:

- 4.87% with 30 year am over 10 years is a fantastic deal in today's market.  I've really only seen these kinds of numbers with an Agency SBL program, on a borrower with extensive multifamily experience, in a primary or secondary market.  You'll need to be able to fit in their requirements, including significant liquid reserves & net worth.  

- You mention the property is ~4 hours from Miami.  I'm imagining that this is still somewhere in FL, but not in a primary or secondary market.  Agency lenders will cut your terms solely on location, based on their own internal guidelines.  You not living in the market may also affect you, but 4 hours away is better than across the country.  If you own properties in the same town and have good operating history, that should help.

- This is your first deal of this size.  In a lender's eyes, residential rentals (1-4 units) don't carry much clout as far as experience.  This will probably affect your terms.

- As mentioned above, your management numbers and reserves need to fatten up. Lenders will do their own underwriting and use market rate assumptions (i.e. 10% for management). This will affect your NOI and therefore reduce your maximum LTV. Make sure your cash flow still works if you get less than 75% of the purchase price.

- IO costs money.  Usually 4bps added to your annual interest rate, per year of IO.  So an extra .08% on your rate, over 10 years.  Calculate that out and see if it's still worth it for you.

- Any CapEx work you're planning in the 10 year term will need to come out of pocket if you don't include it in the original loan. I'd consider looking at doing all of your renovations up front, under an IO bridge loan, then stabilize with an agency program that will underwrite better than it does now. (or find a bridge lender that will roll it into a perm loan)

@Account Closed,

You can draw up a simple payment schedule with a few formulas in Excel, and play with the variables.  I'll PM you a template.

@John Hamrin The best way in my opinion is to just call around / look at different lender's websites and see what they are offering.  Many lenders will list broad loan parameters right on their websites, and some will offer regular email blasts with their weekly updated rates. 

You can also start to follow the markets; 5/10 year Treasury, WSJ Prime, etc. to get an idea where fluctuating interest rates come from.  CNBC has these on their website.

I would also recommend reaching out to 3rd party mortgage brokers (as opposed to a specific lender's loan originator), who should know current market rates off the top of their head.  They should not charge you any fees unless you actually close a deal with them.